Costa Coffee Is To Be Bought By Coca Cola For From £3.9bn

09/02/2018

The Costa Coffee chain will be acquired by the soft drinks giant Coca Cola for a deal that is worth almost £3.9bn.

This acquisition would result in Coca Cola being transformed into the largest coffee chain in the UK virtually overnight and provide a platform for the soft drinks company to step into the business of one of the world’s fastest-growing drinks segment. The value of the global coffee shop market is about $165bn.

A number of potential buyers had approached the coffee chain but it was Coca Cola that provided the “dream deal” for investors of the 4000 store coffee chain, said Alison Brittain, the chief executive of Costa Coffee’s owner Whitbread.

Costa Coffee was originally bought by Whitbread in 1995 from its founders Sergio and Bruno Costa for £19m when the coffee chain had only 39 outlets. Whitbread also owns the brand Premier Inn hotel chain. there was a 16 per cent increase in the share of the UK group following the news of the acquisition as investors reacted positively to the much higher than expected sale price.

“The other suitors weren’t wearing the right suit or driving the right car,” explained Brittain about the other offers it received. “It’s Coke we decided to go up the aisle with, with a very large ring on our finger.”

There is a decline trend in the popularity of sugar-laden soft drinks among the health conscious consumers and for soft drinks companies like Coca Cola, despite the sugar laden carbonated drinks formed the core business, diversifying into other drink segments has gained priority. Coca Cola rival Pepsi recently announced acquisition of SodaStream, an Israeli fizzy drinks maker while a license to sell Starbucks-packaged coffees and teas around the world was recently acquired by the Swiss food giant Nestlé.

However, analysts at Allegra World Coffee Portal say that the number of coffee shops in the UK has grown from 10,000 in 2007 to about 24,000 currently and hence the UK coffee market could be nearing its peak. The number of Costa Coffee branches in the UK is almost twice as much as those of Starbucks and almost four times the number of Caffè Neros.

The growth in demand for coffee globally is 6 per cent annually, and therefore there exists a global opportunity for Coca Cola form the deal. The growth rate in coffee is much more than that of the traditional soft drinks heartland where there is a pressure on the bottom line because of healthier drink options being sought by consumers. Additionally, the coffee culture is still in its infancy in potentially huge sales markets such as China.

“They [Coca-Cola] have no coffee in their range,” Brittain explained. “You could see Costa absolutely everywhere, in vending machines, hotels, restaurants, pubs, cafes – in all the places you see Coke today.” Coca Cola has a range of healthy drinks such as Abbey Well water and Innocent smoothies in addition to its fizzy brands such as Fanta and Sprite. And then there is the world-renowned Coke drinks – the core product of the company. in 2017, the revenues for Coca Cola was $35.4bn, while that of Costa was £1.3bn.